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The effect of fiscal policy on demand has turned broadly neutral.
But are such benefits large enough to ensure that the net effect of fiscal consolidation is to boost growth?
Uncertainty about the effect of fiscal policy in Washington is not helping expectations for the rest of the year, either.
Indeed, the latest evidence is that, in a downturn, the multiplier effect of fiscal belt-tightening is more acute, leading to even deeper recession.
George Osborne, Britain's chancellor, has long hoped that monetary policy would offset the adverse effect of fiscal austerity on the economy.
The latest evidence is that in a downturn the multiplier effect of fiscal tightening can lead to deeper recession, making it even harder to cut the deficit.
Similar(37)
Macroeconomic Effects of Fiscal Consolidation".
Co-ordinated action on this scale might suggest a consensus about the effects of fiscal stimulus.
Instead, the depressing effects of fiscal austerity have been reinforced by falling private spending.
This might be true if there are increasing returns to fiscal stimulus or there are threshold effects of fiscal stimulus.
A sample: To illustrate why estimating the effects of fiscal policy is hard, let me start with an example.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com